An Interview on Privatization with CEPR’s Mark Weisbrot and Dean Baker

By: Joe Emersberger – HaitiAnalysis.com

Haitian President Ren� Pr�val recently announced the privatization of T�l�co, the state telephone company. HaitiAnalysis approached two economists, Dean Baker and Mark Weisbrot, co-founders of the Center for Economic and Policy Research (CEPR) with questions about privatization.

One of Preval’s arguments for privatizing Teleco has been that its employee per subscriber ratio is much higher than other companies operating in Haiti. What do you think of that as an argument for privatization?

MARK WEISBROT: Dean has made the main points [below]. I would just add that I was consultant to Aristide’s first government when they first came under enormous pressure to privatize the telephone, electricity, cement and other companies, in 1996. At the time, the pressure was clearly from the US government and it was on behalf of private companies like MCI here. Even the IMF was not in favor of the privatization of the telephone company, because they knew that it was a huge source of revenue for a government that could hardly collect any taxes from rich people or businesses in Haiti, but was able to tax international calls. For them, that outweighed other considerations, and it did for me too.

DEAN BAKER: You have to make sure that you’re comparing apples to apples when using a ratio like this. A public utility is often run deliberately as a public service rather than to maximize profit. This could mean, for example, that they are trying to provide service to hard to reach sections of the country (either because of distance, poor infrastructure, or crime). Private companies will cherry pick and take the easiest to reach sections. An analogy in the U.S. is that the U.S. postal service will deliver a letter to rural Alaska for the same price as it costs to send a letter across the street. If a private company specialized in sending letters across the street, it could clearly undercut the postal service, but of course they would not be delivering mail to rural Alaska.

Has there been a detailed analysis of the impact of privatization in Haiti or Third World countries generally?

DEAN BAKER: Not that I know of, but I do know of research by the World Bank on Social Security privatization that finds that it is not working very well. There is a book, “Keeping the Promise of Social Security in Latin America” published in 2004. by Indermit Gill, Truman Packard, and Juan Yermo, Stanford Economics and Finance.

Some have said it is foolish for progressives to defend state enterprises which have lost support among the poor due to corruption and poor service. How do you respond?

DEAN BAKER If no one likes a service, including the people who are supposed to be benefiting from it, then it’s probably a good idea to ask why. If it provides bad service than we should be asking how it can be reformed. I would agree that it would be foolish to devote a lot of energy to defending an unpopular service in its current form. The question would be whether there is a better alternative to privatization.

Isn’t Venezuela’s oil company providing much more benefit to the public under the new management Hugo Chavez brought in? Isn’t that an example of government drastically reforming a state enterprise without privatization?

MARK WEISLBROT: Yes. Venezuela’s state oil company (Petroleos de Venezuela, or PDVSA) provided $13.3 billion of social spending last year, or 7.3 percent of GDP. For comparison, this is more than one and a half times US military spending as a percentage of our economy. The government’s reform of the state oil company has also included raising royalty rates on foreign companies operating in Venezuela. Venezuela’s oil production was nationalized in 1976 but by the 1990s it had become a relatively autonomous entity. Since the Chavez government got control over the industry, it has vastly increased oil revenues — far beyond the increases in the price of oil — and increased social spending per person by more than 300 percent over pre-1999 levels. PDVSA still has problems in its administration, but there is no question that millions of Venezuelans are better off as a result of the government’s asserting control over the company and the industry.

It has also been argued that cell phone companies in Haiti have “democratized” the market – providing options for the poor. The suggestion is that privatization would offer more choices?

DEAN BAKER: The real question is what sort of choices might the company be offering if it were private that it can’t offer because it is public. If we think that there are things that a privately run company would do, but the public company is not doing, then we should be asking why the public company isn’t doing them. There are some things that are privately run company might do that may not be desirable, for example it may seek to break the unions at the company.

To what extent have cell phone companies owe their existence to government funded research in rich countries.

DEAN BAKER: Rich country governments have supported research that has helped develop cell phone technology. Of course, they have also funded research that has helped to improve fixed line technology. I’m not sure what impact these facts would have on the privatization decision.

When private companies offer relatively affordable products (computers or cell phones) people come to believe that it is the inherent efficiency of private companies that makes this happen forgetting, perhaps not realizing, how the research was funded by governments. Doesn’t the lack of appreciation of the public role help the boosters of privatization?

DEAN BAKER: There are certainly many people who believe that governments cannot do anything, in part because they fail to recognize the impact that government funded R&D has had in raising productivity and improving the quality of life. This ideology can lead to a bias towards privatizing industries that may be successfully operated in the public sector.